Significant Growth in North American Life Reinsurance
Fitch Ratings, a well-respected credit rating agency, has reported a substantial rise in North American life reinsurance for 2024. This growth is primarily fueled by expanding partnerships between insurers and alternative investment managers, increased reliance on offshore reinsurance platforms, and a record-breaking year for annuity sales.
Surge in Ceded Reserves
According to the analysis by Fitch, reserves ceded by insurers, as measured through reserve credit and modified coinsurance (modco) reserves reported in U.S. statutory filings, have climbed from $2.0 trillion in 2023 to $2.4 trillion in 2024.
Key Drivers of Expansion
Partnerships with Alternative Investment Managers: Collaborations between re/insurers and alternative investment managers have been pivotal. These alliances often materialize as sidecars and offshore reinsurance platforms, enabling life insurers to offload capital-intensive legacy liabilities more efficiently. By the end of 2024, nearly 40% of ceded reserves were linked to entities associated with alternative investment managers, a trend that has persisted into 2025.
Offshore Reinsurance Platforms: The increasing use of offshore reinsurance platforms, mostly based in Bermuda, is another significant factor. Despite enhanced regulatory requirements in 2024, Bermuda continues to attract insurers with its favorable and flexible regulatory environment compared to the U.S. Together with Barbados and the Cayman Islands, Bermuda now represents approximately 95% of offshore ceded reserves.
Record Annuity Sales
A combination of rising interest rates, an aging population, and robust capital positions within the industry have led to a surge in annuity sales. Retail annuity sales reached an all-time high of $434 billion in 2024, marking the fourth consecutive year of record sales. Though Fitch expects a moderation in sales growth in 2025, with interest rates anticipated to stabilize around 4.50% by year-end, the demand remains strong.
Innovative Reinsurance Structures
Insurers are increasingly employing innovative reinsurance structures, such as sidecars and offshore platforms, in collaboration with alternative investment managers. These structures offer improved capital management, allowing insurers to support new business volumes while optimizing capital usage. Sidecars typically assume all business from their sponsoring insurers, whereas reinsurance platforms often start with business from their sponsors but are expected to expand to include third-party business. Fitch cautions that while these structures promote growth, they also increase counterparty credit exposure, necessitating ongoing vigilance.
Impact of Large Block Reinsurance Deals
Upon examining recent market activity, Fitch Ratings notes that large block reinsurance deals have generally had a neutral impact on insurer credit ratings. Cedants benefit from enhanced business risk profiles, while reinsurers take on complex liabilities but manage them by resetting key assumptions. Several high-profile transactions involving major insurers, such as Lincoln National Corporation, MetLife, and Guardian Life Insurance Company, are highlighted as indicative of this ongoing trend. Publicly traded insurers often divest complex or lower-return liabilities to free up capital, while reinsurance consolidators, frequently backed by alternative investment managers, aim to scale up and reposition assets towards less liquid strategies, leveraging their investment expertise.
Future Outlook
Looking ahead, Fitch forecasts that offshore reinsurance will continue to be a growing component of the North American life insurance market. The ongoing demand for capital optimization amid strong annuity sales and expanding partnerships supports this trend. Fitch emphasizes the necessity of evaluating reinsurance arrangements on an individual basis, taking into account jurisdictional regulatory environments, reserve requirements, and structural safeguards to ensure prudent risk management.
